Talks over Celesio could drag on for weeks - sources

FRANKFURT Talks between U.S. drug distributor McKesson and the owner of Celesio over a possible bid for the German company could drag on for weeks, people familiar with the matter said on Wednesday.

Shares in Celesio, one of Europe's largest drug wholesalers, surged 20 percent on Tuesday on a report that McKesson could offer about 3.74 billion euros ($5.1 billion), or 22 euros per share, for the German company.

Sources close to the matter said McKesson remained anxious not to overpay, while some Celesio investors stressed the difficult European market is a blank spot on McKesson's map.

"Normally, U.S. companies tend to take over successful European rivals, rather than those in difficult situations. You need courage to invest in the uncertain Celesio story," said Union Investment fund manager Sebastien Buch, who holds Celesio shares.

"What's more, the strictly regulated European market would be uncharted territory for McKesson," Buch said, adding that for 22 euros apiece, he would tender his shares immediately.

Celesio declined comment.

The three largest drugs distributors in the United States - AmerisourceBergen, Cardinal Health and McKesson, which between them account for 95 percent of the U.S. market - are all looking to grow abroad to gain purchasing power with drug makers.

Celesio, owner of Britain's Lloyds Pharmacy, is suffering from a price war in the German drugs wholesale market, where it competes with unlisted Alliance Boots, and from healthcare budget cuts across Europe, its main market.

In response, Chief Executive Marion Helmes is centralizing procurement to cut costs, as well as widening and standardizing the offering of its pharmacies across Europe under the Lloyds brand.

"Making direct moves into Europe is not without risks. The European wholesale market is complex, low-growth and subject to continued competitive and regulatory pressures," said Berenberg analyst Scott Bardo in a note to investors.

Celesio's market value including debt is 9.1 times forward EBITDA (earnings before interest, taxes, depreciation and amortization), not far McKesson's 9.2 times multiple, according to StarMine.

That compares with a multiple of about 11 times which U.S. drugstore chain Walgreens paid for a stake in Alliance Boots last year.